Types of Bonds

Construction

Construction surety bonds are required for most public construction contracts and many private contracts. We write construction surety bonds for all four primary categories—bid, performance, payment and maintenance—and express bonds for small and emerging contractors.

Bid Bonds

The purpose of a bid bond is to pre-qualify the contractor as a responsible bidder and assure the project owner that the contractor with the low bid will enter into the final contract for the prescribed work.

Performance Bonds

Performance bonds indemnify the obligee against loss resulting from the failure of the contractor to complete the work, in accordance with the plans and specifications.

Payment Bonds

Payment bonds assure the project obligee that all subcontractors, laborers and material suppliers on the job will be paid appropriately.

Maintenance and Warranty Bonds

Maintenance and warranty bonds assure the obligee that the completed work shall be free from defective workmanship or materials.

Commercial

Commercial surety bonds are generally required by all levels of government (federal, state and local statutes) to guarantee a myriad of obligations, like compliance with licenses and permits, payment of royalties and taxes, and security for financial obligations. They’re also used to regulate markets, protect the public against fraud and other unethical business practices, and ensure taxes are paid.

Our support for the commercial sector skews more to Main Street than Wall Street, from truckers and fuel and oil delivery businesses, to microbreweries and real estate offices.

Court and Fiduciary Bonds

Court bonds are required in civil proceedings at both the federal and state level. Whenever a litigant seeks to avail themselves of privileges or remedies that are allowed by law, a bond is required to protect the rights of the opposing litigant or interested party. These bonds can include appeals, attachments, garnishments, indemnity to sheriff, injunctions, mechanic’s liens and replevin actions, to name a few.

A court fiduciary administers property held in trust and is required to post a bond with the court, ensuring faithful performance and compliance with the orders of the court. Frankenmuth Surety writes most classes of fiduciary and guardian bonds.

License, Permit and Excise Tax Bonds

License and permit (L&P) bonds are also required by statute, ordinance and some local regulations. These bonds indemnify the obligee for loss or damage resulting from the principal failing to comply with the laws or ordinances. Some L&P bonds are unique in that they also convey a right of action to third parties to recover loss and damages. Most professional agents, brokers and dealers, such as collection, employment, medical, finance, livestock, mortgage, real estate and transportation, must post L&P bonds. A good example of third-party liability coverage is a motor vehicle dealer bond, which protects the state, as well as people who purchase a car from the dealer.

Excise tax bonds are straightforward and guarantee payment of tax to the appropriate federal or state agency overseeing the product. This includes the sale of all alcohol, tobacco, fuel, grain and other commodities. These bonds also include payment of sales and use tax to the regulatory agency.

Miscellaneous Bonds

Some miscellaneous bonds are required by statute, ordinances or regulation, while others may be purely voluntary undertakings prescribed by or acceptable to the obligee. These bonds may be a financial guarantee associated with escrow deposits, games of chance, turnpike tolls and utility deposits. Other forms provide indemnity as security in connection with auctions, cable, construction, concessionaires, leases, lost instruments, real estate, school teachers and transfer agents.

Subdivision Bonds

A subdivision bond guarantees the completion of improvements made to subdivision property, such as gutters, sidewalks, curbs, sewers, utility lines and others, in accordance with regulations. Builders, developers and individual landowners will often be required to post subdivision bonds when making such improvements. The bond is most often posted at the time when lot maps (also known as plats) are filed or building permits are acquired. While subdivision improvement work is made to public property, it is usually made at the expense of the builder or developer. A subdivision bond, like other construction bonds, is a three-party agreement made between the obligee (city, county or state), the principal (the developer or builder) and the surety (the company underwriting the bond). The surety’s role is to guarantee that if the principal defaults and fails to complete or make the necessary improvements, the surety will cover the remaining work and any damages and losses sustained.